Better to spend all of savings and be debt free or full of debt with lots of...Posted by townhallsavoy on 4/16/13 at 1:29 pm

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...savings?

Curious about the Money Board's thoughts.

I'm trying to sell my house, and I'm not having much luck on getting the offer I need to break even. In fact, it looks like I'll need to write a check for $9k just to get out of the house. Then, I'll need about $5k-$7k to purchase another one. That effectively wipes out the savings I've built up over the last few years.

I could rent the house and then purchase another one, keeping the $8k in the bank. I've already been preapproved to purchase a second home if I decide to rent out my house. Problem here is that I would then have two $150k+ mortgages, but at least I have a safety net if something happens.

re: Better to spend all of savings and be debt free or full of debt with lots of...Posted by rintintin on 4/16/13 at 1:32 pm to townhallsavoy

quote:Problem here is that I would then have two $150k+ mortgages

With interest rates so low this may actually not be a bad thing. And depending on how much your mortgage is on your current home, you could pocket even more money by renting it out. Why pay to move out when you could make money by moving out?

re: Better to spend all of savings and be debt free or full of debt with lots of...Posted by LSURussian on 4/16/13 at 2:07 pm to townhallsavoy

quote:What should I expect?

The interest is deductible for most taxpayers and if you rent the house then you probably can have a depreciation (non-cash) deduction, but there are special rules which apply to rent houses that you once lived in, so, as they say, see your tax adviser.

re: Better to spend all of savings and be debt free or full of debt with lots of...Posted by trident on 4/16/13 at 2:24 pm to townhallsavoy

quote:We need to get out of the house for work related reasons.

sounds to me that you are moving out of town. With this scenario I would sell because it is going to cost you a fortune to fix the issues with the house once a renter breaks (they will always break stuff). I would payout and then start to rebuild the emergency fund again

re: Better to spend all of savings and be debt free or full of debt with lots of...Posted by FredSecunda on 4/16/13 at 3:50 pm to Tigerpaw123

Not sure what the answer is, but I don't think the answer is to carry two mortgages, even with renters in one of the houses. What if you have to make major capital improvements to either house at the same time? You're taking on quite the risk by doing this.

I'd consider selling the house by owner to avoid paying a realtor. See if this gets you back to even. At the very least, you can see where your offers come in and no what the market is telling you about the value of your home.

If you decide not to sell it, rent the house and then rent a cheap apartment while you build up more savings. Reassess in one year.